In a major relief to M/s. Fourrts (India) Laboratories P. Ltd, the appellant, the Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), ruled that physician samples are to be assessed under Section 4 (1) (a) of Central Excise Act, 1944.
On perusal of records of the appellant, it was found that they had cleared products (P and P medicaments) both for sales (affixing MRP) as well as for free distribution to physicians as samples (for which no MRP was affixed). During the period from March 2009 to June 2010 for the regular clearances they had adopted valuation under Section 4A of Central Excise Act, 1944, and for the products cleared as physician samples, the appellant adopted the transaction value as under Section 4 of Central Excise Act, 1944 for payment of excise duty.
The department was of the view that the products cleared as physician samples also should be assessed under section 4A of Central Excise Act, 1944. Show Cause Notice was issued proposing to demand the differential duty along with interest and also for imposing penalties. After due process of law, the original authority confirmed the demand along with interest and imposed penalty. On appeal, the Commissioner (Appeals) upheld the same. Hence this appeal.
The Counsel for the appellant relied on the judgment in the case of Commissioner Central Excise, Thane Vs. Meghdoot Chemicals Limited and submitted that Section 4 and 4A are independent sections and governed by specific legal principles. Section 4 is governed by Valuation Rules 2000, which have no nexus or application for valuation under section 4A. Rule 4 of the Central Excise Valuation Rules 2000, that is relied in the Show Cause Notice for the purpose of computing the pro-rata basis value as per Section 4A which is highly erroneous.
The Apex Court in the case of Sun Pharmaceuticals Ltd, held that “When we find that price was charged by the assessee from the distributors, the show cause notice is clearly founded on a wrong reason. The case would squarely be covered under the provisions of Section 4(1)(a) of the Act. In view thereof, the Central Excise Rules would not apply in the instant case. The case would be covered by the provisions of Section 4(1)(a) of the Act and in view thereof Rule 6(b)(ii) of the Rules would not apply.”
A Two-Member Bench comprising Vasa Seshagiri Rao, Technical Member and CS Sulekha Beevi, Judicial Member observed that “Similar view was taken in the case of Meghdoot Chemicals Ltd. After considering the facts, and following the above decisions, we are of the considered view that the demand cannot sustain. The impugned orders are set aside.”
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